FREE FALL

Colton had a bad week: Tuesday, his girlfriend moved out. Wednesday, the mines laid him off.

No question that Colton and his now ex-girlfriend, too young and unmarried, never should have bought a house together. Colton was a high school dropout who eventually got his GED, but his money managing skills were poor. He once bought a dirt bike because he read “monthly payment of $68” and didn’t read “for 5 years.” He finally sold it for a large loss.

Colton’s mother told me how his buying a house would be good, since he wouldn’t “throw money away on rent,” would “build equity” and other platitudes pushed by the industry (beginning with “home,” instead of “house.”) I knew that if everything worked perfectly, which it wouldn’t, Colton was headed for trouble.

I suspect he did not realize additional costs of ownership, like insurance, taxes, utilities and repairs. I suspect that he didn’t appreciate that $4 a pound copper wouldn’t last, and when the price fell, his job would be in jeopardy.

We bought our house in 1977, after renting for six years in three different places. Flexibility is a big advantage of renting. Back then, down payments were 20%. Our combined take home pay was four times the fixed monthly payment, a good rule of thumb, and we had job security. Colton’s foreclosure will help keep Arizona among the nation’s leaders in that category, typical of places where the major industry is the unsustainable concept of permanent growth. But when you live where individual rights trump common sense and education is an afterthought, foreclosure rates are among the nation’s highest and there is a payday lending problem. Maybe that is why Arizona leads the nation in congenital syphilis cases. I can’t prove it, but we probably have more than our share of animal hoarders and breeders, too. The irony is how much these individual rights cost each of us, like the right to implant eight embryos in a woman with several young children or having another motorcycle accident victim in the ED who had no helmet and no insurance.

Colton had neither the education nor the judgment to buy a house. One cannot understand finance without knowing how to manipulate numbers, but I’m repeating myself. While he was childless, he moved back with his parents and will file bankruptcy. I recently saw a bumper sticker on a giant Lexus SUV: “Fight Socialism, show personal responsibility.” Even as America under a Republican president embraced corporate welfare. But the rich are different. Just ask them.

Not all of us have personal connections, smarts, personality or luck to have scads of money to own such a vehicle. While some of the poor are drunk and lazy, many are hard working folk whose only crime is not being young. But most are women and children, ironic in a country that purportedly values the latter, ranking high in the developed world in birth rate and teen pregnancies, the last especially true in Arizona. Individual rights and lack of education win again.

But let’s be clear: Colton didn’t cause the financial catastrophe that in dollars is at least 400 9/11s. Yes, 400. I believe the financial community and politicians are guilty of treason for this largely preventable mess. We had poorly understood financial instruments like credit default swaps, rampant speculation and gambling in what may have been a $60 trillion unregulated market. Businesses like Enron, World Com and Tyco outright lied; loans were given to people to buy houses they couldn’t afford in a clearly overvalued unregulated “free” market. Executives received obscene bonuses, perverting etymology, with tax dollars. As a mathematician, I am ashamed at my colleagues who created models that failed to account for the possibility that housing prices could fall and incredulous that senior executives would believe them. But that’s what happens when we base financial policy on ideology, rather than reality. I hear the stock market “always goes up,” based on all of six decades’ experience applied to an America that today is a lot less productive of tangible goods than it was when I was Colton’s age.

My late mother, despite being a sociology teacher and an unabashed Adlai Stevenson liberal, often said “people are no damn good.” If people did what they were supposed to, instead of being no damn good, we wouldn’t need regulation, for everybody would act appropriately, sometimes even against their economic self-interest. If people were perfect, practically any system would succeed.

I find it hypocritical that many who decry the nanny state remain silent about financiers who put the world economy in free fall and now get free money and a free pass. Those of us who are fortunate in life have some responsibility to those less fortunate. The responsibility may not be financial but rather saying “no” at the proper time. We used do that before the free market, free rides and free fall. I believe in capitalism, but the idea that people will invariably behave properly without somebody occasionally reining them in is ludicrous, unrealistic and contrary to human behavioral science. Heck, anybody who ever attended a MEC meeting should know that.